What is a Trust? - Knowledge Sharing Series

What is a Trust?

We have found that the amount of people that have heard the word “Trust’ thrown around is vast, but the number of people that understand what a Trust is and what it is used for is incredibly low in comparison.

This short blog post will work through the explanation of what a Trust does including a couple of examples of how a Trust might suit your situation. If this blog has given you some valuable insights, be sure to check out our other blogs on “Do i need a Trust?” and “Does the new Trust Act change whether i should have a Trust?”

A Trust is a very old mechanism to have assets looked after for someone without the individual people having ownership. Once created, a Trust is it’s own separate legal entity from the settlors of the Trust.

So let’s get into some of the detail:

A trust is when ‘someone’ gives ‘someone’ else ‘something’ to look after for ‘someone’ else again, usually in terms of a set of rules.”

So that is a lot of someone’s. you’d be forgiven for at this point having no idea what we are talking about, however, let’s restate that using the more legal and specific names for all the ‘someone’s’.

“A trust is when the settlor gives the trustees an asset for the beneficiaries, with the rules for this set out in the Trust Deed.”

So what does a real example look like? Let’s imagine you have a bit of debt around your business and property investment empire. You have a significant but not overwhelming lotto win and you come into enough funds to take the family home out of the hands of the bank you might set up a Trust as follows:

“My Family Trust is where I (settlor) have given the family home to my partner and I and our trusted friend (trustees) to look after for the benefit of my partner and I, and our children (beneficiaries) specified by the terms set out in the Deed of Trust for My Family Trust.

The most important feature to understand in the asset protection component that the Trust's structure allows you. Because the assets of the Trust are owned by the Trustee’s of the Trust there is separation from you personally. That separation can be the difference between potential creditors being able to have free run of your assets or not should you come into financial hardship.

If you have any further questions about what a Trust is or how a Trust might benefit you, simply contact us today!